The Stock Market Crash

1. The Stock Market Crash Chapter 14-1

2. The Nation’s Sick Economy The prosperity of the 1920s was superficial: • Major industries are not making a profit; • Demand for industrial goods decreases after WWI; • There is a crisis in farming • Demand for farm goods decreases after WWI; • Prices for farm goods fall (deflation); • Farmers are debt • Consumers have less money to spend & buy less; • Many people are living on credit (borrowed money); • Gap between rich & poor widening.

3. What is Stock? • Stock – A small piece of ownership in a corporation • Corporations sell stock in order to raise money to expand their business and/or develop new products; • The price of a company’s stock reflects the perceived value of the corporation • What the public thinks the company is worth

4. What is the Stock Market? • Stock Market(aka Stock Exchange) – a place where stocks are bought and sold; • The New York Stock Exchangeis one of the oldest and best established stock markets in the country; • The Dow Jones Industrial Averageis an average of the stock prices for 30 of the biggest companies traded on the NYSE; • Many people look to the Dow as a barometer of the of the stock market’s health

5. Stocks in the Roaring 1920s • During the 1920s stock prices rose steadily • The Dow Jones hit an all time high of 381 • People rushed to buy stocks and bonds • Many engaged in speculation – buying stocks with the hope of making a quick profit; • People also began to buy on margin – paying a small percentage of a stock’s price and borrowing the rest (on credit). • Bubble Market - Rising stock prices do not accurately reflect the actual value of the stock

6. The Stock Market Crashes • In 1929 stock prices peak, then fall; • The Bubble Bursts – Investors begin to loose confidence in the stock market; • Black Tuesday – October 29, 1929, investors panic and everyone tries to sell their stock; • There are no buyers; • People who bought stock on margin are stuck with huge debt, others loose their entire investment; • By November, investors have lost $30 Billion.

9. The Great Depression Begins • The stock market crash signals the beginning of the Great Depression; • Aneconomic depressionis characterized by negative economic growth and high unemployment; • GDP is cut in half, from $104B to $59B • 90,000 businesses go bankrupt • Unemployment reaches 25% • The Great Depression lasts from 1929 – 1940

11. Depression Strikes Worldwide • Most European countries have huge debts as a result of WWI • High tariffs (taxes on imports) limit America’s ability to import goods from Europe • This prevents Europeans from earning American dollars and buying American goods • European countries institute their own protective tariffs on imported American goods • World trade plummets by 40% • Unemployment is made worse

12. Panic Spreads to the Banks • The crash leads people to panic and try to withdraw their money from banks; • Many banks have invested in the stock market and have lost a lot of money; • They have no money to return to their customers; • Thousands of banks close; • 44% of the nation’s banks close • Many people loose their entire life savings;

13. Summary of Causes • War debt and high tariffs limit the foreign market for American goods • Demand for consumer goods decreases after the war; • A crisis in farming leads to massive debt and falling prices for farm goods; • Availability of easy credit; • An unequal distribution of income